Protecting assets from lawsuits, etc

[Drole]

I have an acquaintance whose life just took a rather drastic turn.  I’d rather not go into details on that, but it has me thinking.  I think we all (sort of) plan for things like death of a spouse and have car, home and medical insurance…..but I’m suddenly thinking about being a little prepared for ‘other’ possibilities.  Other possibilities might include:

-getting sued for major $ by tenants (we have rental properties)
-sudden/unexpected divorce
-car or other accident causing someone else major injury/death
-one of my children causing bodily harm to someone else
-sexual harassment claim
-drunk driving accident

Many of these are quite preventable by one’s choices, but we all make bad choices sometimes.  So if you and/or your spouse suddenly needed to protect your assets, how would/could you protect them in different ways?

For instance, we explored options for rental properties a few years ago.  You can buy a lot of insurance but is it also worth it to put properties into an LLC, a trust, separate and different owners for each property, etc?  The lawyer we spoke to thought just insurance made the most sense for us.  But I’m questioning that right now. 

Investment account ideas?  Other assets?

[iris lily]

If you are asking this question and you dont even have umbrella insurance, stop this computer right now and get thee to an insurance broker to set that up. Umbrella policies are inexpensive.

After that, come back here and we can talk about what your steps should be beyond umbrella insurance.

[Drole]

We have an umbrella policy but there are some gaps right now as some properties are not covered on it. Working towards fixing that, but it is a time/money issue. 

I admit i'm probably just in a bit of shock with what is going on with this other person, but i'm thinking insurance might not be enough.

[Slow2FIRE]

This type of thing is highly state specific.

If you have properties in multiple states, then you better understand the law in each of those states wrt liability.

How we protect our assets:
1.  401K - ERISA
2.  Roth IRA protected in Arizona under ARS 33-1126 10)B)
3.  Umbrella policy

I personally wouldn't want to go through the trouble of setting up an LLC and making sure we don't comingle anything, follow all the procedures of meetings and officers, etc. 

[BuildingmyFIRE]

You need to speak with an insurance broker to make sure that you are carrying adequate insurance coverage, both with respect to defense (the hiring of a lawyer if you are sued) and indemnity (what the insurer will pay on your behalf for a covered loss or liability), on all of your major potentially liability producing assets.  Look for plans in which defense costs do not "erode" the  limits of liability -- i.e., defense costs don't eat up the $1 mil or whatever coverage limit of the policy. 

You should also speak with a lawyer who specializes in landlord tenant law in the states in which you own property to make sure that your rental properties are compliant with ALL applicable state law (e.g., are your properties in compliance with the sanitary code, town or city bylaw, etc.?)  If they aren't, get them up to code ASAP.  Having properties that are not code compliant and easy targets for plaintiffs' lawyers. 

Coming up with clever ways to shield your assets (most of which likely wont work as there are legal ways to pierce through shell companies)  is not the best plan.